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Every week, AccountsRecovery.net brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.
Utah Court Rules Debt Buyer Must Register Under State Collection Agency Law
A District Court judge in Utah has ruled that entities which purchase debts and then assign those debts to collection agencies for recovery must register under the Utah Collection Agency Act, denying motions to certify a question of state law and a motion for summary judgment. More details here.
WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN SANDERS: The obvious takeaway from this decision is that, for debt buyers who seek to collect on debt in Utah, registering as a debt collection office and posting a bond is a must prior to engaging in collection activity, in particular before authorizing the filing of collection suits in Utah state court. In the wider context, this decision signifies that debt buyers are continuing to face similar risks at the state and federal level as the collection agencies and law firms they employ. While this decision did not address whether First Financial would qualify as a debt collector under the FDCPA (though, the court said that it likely would), it is in line with other recent decisions, such as the Ninth Circuit’s decision in McAdory v. M.N.S. Associates and DNF Associates, that held debt buyers qualified as debt collectors under the FDCPA. In sum, this decision is another step in the trend of courts reaching further up the ladder to impose restraints on debt buyers by treating them as indistinguishable from debt collectors.
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California AG Issues New Modifications to CCPA
The Attorney General of California has issued an additional set of modifications to the proposed regulations under the California Consumer Privacy Act (CCPA), and is accepting comments on the proposal until the end of the month. More details here.
WHAT THIS MEANS, FROM LAUREN VALENZUELA OF PERFORMANT: Come on, California! Please make up your mind so we can move on with operationalizing compliance with the CCPA regulations. I suppose the fact that this is the second set of modifications to the proposed CCPA regulations shows that the California AG is actively listening to feedback received through public comments.
While most of the modifications are “clean-up” in nature, there are two changes that are very disappointing. The first is the removal of the definitional guidance provided for the term “personal information.” The statutory definition of personal information is extremely broad and expansive. The previous proposed regulations had provided some practical guidance to reign-in and help companies better conceptualize the definition. The AG changed its mind and removed the definitional guidance altogether. So, the broad definition of “personal information” will continue its reign of terror for businesses (okay, I’ll stop being dramatic).
Secondly, the previous proposed regulations had simplified what was required to be in a business’ privacy policy. The AG changed its mind and decided to throw back in two provisions (restoring the requirement that privacy policies must list and explain the categories of sources of collected information and the requirement that businesses list and explain the business or commercial purposes for which it collects personal information).
As with many things, the devil is in the details. I encourage everyone to review the modified proposed regulations and if you have something to say about them, you’ve got time to submit a public comment. All comments are due by March 27th, 5:00 pm PST, and can be done via email. Speak now or forever hold your peace, its unlikely the AG will issue a third round of revisions (but then again, who knows!)
Fifth Circuit Upholds MSJ in FDCPA Case Over Interest Disclosure in Letter
The Court of Appeals for the Fifth Circuit has upheld a lower court’s ruling that mentioning in a collection letter that interest may accrue on an unpaid debt is a “common-sense truism about borrowing” and not a violation of the Fair Debt Collection Practices Act. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: When interest is accruing a debt, many courts require language in the validation notice that informs the consumer interest is accruing. Absent that information, those courts have ruled the collector violated the FDCPA by not fully stating the amount of the debt owed. This is known as interest safe harbor language.
Many collectors borrow the language suggested by the Seventh Circuit in Miller v. McCalla, “[b]ecause of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.” When collectors use this language in letters referencing debts that do no accrue interest, courts find the language deceptive and misleading because it implies interest is accruing when it is not.
In Salinas, the collection letter stated, “[i]n the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice.” The Fifth Circuit focused on “in the event.” It held the letter was not misleading even though interest was not accruing because “it merely expresses a common-sense truism about borrowing — if interest is accruing on a debt, then the amount due may go up. That simple statement would have been clear even to an unsophisticated borrower thousands of years ago, just as it would be today.”
The Salinas court compared this to other cases using “conditional language,” if this than that. It emphasized that there is a difference between telling someone a truism (e.g., “if it is raining outsides, the ground may be wet”) and telling the consumer that something may happened when it is otherwise not possible (e.g., non-payment may result in a lawsuit being filed on out of statute debt).
This is a good ruling for the industry, but I would be cautious about basing policies and procedures on it. There are many courts who would have found the language in Salinas deceptive and misleading concluding an unsophisticated consumer could reach two different conclusions as to whether interest was possibly accruing. Therefore, a safer option is to only use the interest safe harbor language when interest is accruing. Again, Salinas is a win for the industry and should be celebrated as a court using common sense, but it is dangerous to believe all courts would have reached the same conclusion.
Ambulance Co. To Cancel $1.6M in Debts, Pay $50k Fine in Settlement With Mass. AG
An ambulance company has agreed to pay a $50,000 fine and cancel $1.6 million in unpaid debts after reaching a settlement with the Attorney General of Massachusetts to resolve allegations that a deceased collection attorney illegally threatened consumers with arrest and imprisonment. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: First, let’s take this time to remind all readers that even as a licensed attorney, you CANNOT threaten jail time if someone cannot pay a bill (15 U.S.C. § 1692e(5); see also 12 U.S.C. § 1692e(10) (prohibiting “[t]he use of any false representation or deceptive means to collect or attempt to collect any debt”)). That said, I don’t believe that fact is the biggest take away from this case but rather the fact that ongoing vendor management is vital. In this case, the actions were not of the company itself (in this case an ambulance company), not the collection agency’s employees but rather the result of bad acts committed by the collection attorney who the debt collection agency engaged; in other words, the bad acts of the company’s vendor’s vendor.
In many cases, companies are not experts in debt collection and, rather than collect on its own behalf, outsource collection work to debt collection agencies. While this is standard practice, the reliance on the debt collection agencies’ expertise does not relieve the company of liability for actions taken on their behalf. When outsourcing, a company must ensure that vendors utilized to provide services such as debt collection comply with the rules and regulations that govern such services, regardless if the same does not apply to the company itself (Scott v. Fla. Health Sciences Ctr., Inc., No. 8:08-CV-1270-T-24EAJ, 2008 WL 4613083, at *1 (M.D. Fla. Oct. 16, 2008) The Court explained that “[c]orporation and agency principles . . . imput[e] the actions of a corporation’s agents and employees to the corporation itself, which is the only entity that must have knowledge of the illegitimacy of the debt.”).
To protect companies’ contracts with collection agencies should include provisions that clarify that the collection agencies and any agents thereof will comply with the FCCPA, FDCPA, and TCPA, and to ensure that the collection agency’s practices and internal processes and procedures comply with these statutes. In addition, companies should ensure indemnity provisions are included to protect the company if a loss is incurred due to the non-compliance of the collection agencies or the agents thereof.
Judge Grants MTD in FDCPA Case Over SOL Language in Letter
A District Court judge in Louisiana has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act through a notice included in a collection letter notifying the recipient of his rights because the statute of limitations on the underlying debt had expired. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: In my view this decision is a good news-bad news situation. Good news, the Court got it right, the use of the conditional “may” indicates a possibility not a probability. This reasoning follows the same line as cases from several years ago where letters stated “this settlement may have tax consequences.” In those cases, as here, courts found that the statement merely alerted the debtor that they might want to consider the issue.
The bad news, I can see a court taking a more limited view than Judge Cain. His observation that “CFSI’s letter contains no Louisiana-specific provisions, nor does it indicate that partial payment will revive a claim under every state law,” indicates he accepts this as a generic statement. I can just as easily see Judges will a pro debtor bent arguing that a debtor would not know his state law and could assume it did apply. [Keeping in mind that if anything this statement is more likely to discourage payments than anything else.] As a result, my personal suggestion would still be a state specific tailoring of the SOL warning.
Unrelated to this case, as I read the various proposals floating about regarding the cessation of collection activities due to the current health crisis, I notice there is no consideration regarding whether there would be an effect on statutes of limitations. Shouldn’t they be extended?
Senate Dems Release Report Criticizing CFPB, Debt Collection Rule
A report from the Democrats on the Senate Banking Committee criticizes the Consumer Financial Protection Bureau for betraying Americans by not holding the companies it regulates accountable and for giving a “free pass to some of the most abusive collection practices.” More details here.
WHAT THIS MEANS, FROM CARLOS ORTIZ OF HINSHAW CULBERTSON: Sen. Sherrod Brown’s report Consumers Under Attack: The Consumer Financial Protection Bureau under Director Kraninger is a fiery critique on the CFPB and its director. Some of the critiques are that the CFPB allegedly is engaging in “corporate protection instead of consumer protection” by eliminating programs to protect active-duty servicemembers from predatory lending practices, transferring its power to regulate federal student loan servicers to the U.S. Department of Education, stripping the Office of Fair Lending of its supervisory and enforcement duties and refusing to implement payment protections of the Payday Rule. The report notes that in 2011 CFPB’s Office of Fair Lending brought 14 public enforcement actions that secured more than $600 million in restitution and more than $38 million in civil penalties, but since December, 2017 that office has not brought any public enforcement action against a lender for discrimination. The report is critical of Director Kraninger’s decision to no longer defend the CFPB’s constitutionality. The report argues that “Director Kraninger should carry out her statutory duties to enforce fair lending laws, immediately reestablish the Office of Fair Lending, restore its supervisory and enforcement powers, and get back to the critical work of protecting consumers from discrimination.” Regardless of your political views, what has and will continue to transpire at the CFPB is sure to be a topic in the upcoming presidential election in November.
FTC Fines Credit Repair Organization That Marketed Piggybacking To Boost Credit Scores
The Federal Trade Commission has reached a settlement with a credit repair company that will require it to pay about $65,000 out of a $6.6 million fine after it was accused of charging customers illegal fees and making unsupported promises that it could boost the credit scores of individuals by as much as 120 points within two to six weeks. More details here.
WHAT THIS MEANS, FROM LAUREN BURNETTE OF MESSER STRICKLER: Credit manipulation is the ultimate lose-lose situation. Consumers seeking to improve their credit pay hundreds (and, in this case, thousands) of dollars to boost their credit scores to obtain credit for which they otherwise would not qualify. While the consumer may gain some short-term benefit, the long-term harm is much more profound: creditors make lending decisions on less than accurate information, consumer receive credit they cannot afford to pay back, accounts make their way back into the collection cycle, and consumers’ credit scores may decrease as a consequence. Businesses making false promises of credit improvement do a disservice to legitimate credit repair organizations and complicate an already complex credit cycle, and cause harm to all consumers.
Appeals Court Overturns Dismissal of FDCPA Suit About What Can Be Read Through Envelope’s Glassine Window
The Court of Appeals for the Sixth Circuit has overturned a lower court’s dismissal of a lawsuit, ruling that it was too eager to discredit that the words “Collection Bureau” were clearly visible through the glassine portion of an envelope containing a collection letter and remanding the case back to the District Court. More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: “Get our your Secret Decoder Rings!”
It’s been hiding in a drawer for decades now. My secret decoder ring that is (which only cost me 10 gum wrappers and one thin dime taped to a piece of paper). I knew it would come in handy sometime. Up until now I could never make it work.
But in this case, if you hold your secret decoder ring just right, you can “read” upside down and backwards letters — through the glassine window of an envelope — to “reveal” a nonsensical word “noitcelloC” (that’s “collection” spelled backwards, much like “dog” spells God, backwards). And remember, I’m typing the backwards letters, right side up, so I’m making it easier than just decoding the backwards letters. In other words, in the challenged letter, the “word” was upside down as well. A bit of Alice in Wonderland her too.
The lesson? Consumer attorneys will take every liberty to create claims. So let’s put their secret decoder rings away once and for all. In light of this appellate court’s decision (overruling of a reasonable district court judge’s order dismissing the case), consider using heavier stock paper and re-arrange where the upside down/backwards wording falls so there’s no chance anyone can decode the verbiage without opening the envelope to ensure that your correspondence won’t be “Mission Impossible(d)” into a FDCPA claim.
Ninth Circuit Overturns Lower Court’s Ruling, Says Debt Buyer Meets FDCPA’s Definition of Debt Collector
The Ninth Circuit Court of Appeals has reversed a lower court’s dismissal of a lawsuit and determined that a company that purchases and profits from consumer debts meets the definition of “debt collector” under the Fair Debt Collection Practices Act, even if it does not directly interact with individuals and outsources the actual debt collection work to another company. More details here.
WHAT THIS MEANS, FROM ALEXANDER GREEN OF CLARK HILL: In McAdory v. M.N.S. & Associates, et al., the Ninth Circuit joined the Third Circuit (Barbato v. Greystone All., LLC) in defining a “debt collector” subject to the FDCPA to include debt buyers who do not engage in any collection activities themselves and do not interact with consumers. In reaching this holding, the Ninth Circuit considered whether the “principal purpose” of the debt buyer was “the collection of any debts.” The debt buyer argued that this definition required engagement in collection activities and interaction with consumers, but the Court disagreed. Although it acknowledged that the FDCPA regulates “direct collection activities,” the Court reasoned that this fact “does not require the conclusion that Congress intended to regulate only those entities that directly interact with consumers.” Slip Op. at 13.
The Ninth and Third Circuits’ holdings are part of a larger trend of federal appellate courts expanding the scope of the FDCPA. In this instance, two circuits have now stretched the definition of a “debt collector” to regulate an industry that largely did not exist when the FDCPA was first enacted. The result is a bit of a non sequitur – a federal statute that regulates interactions between consumers and debt collectors does not even require interaction with consumers.
On several occasions (most recently in Rotkiske v. Klemm), the Supreme Court has rejected attempts to expand the scope of the FDCPA, favoring a stricter interpretation of the Act. Industry advocates will continue to monitor the McAdory case to observe whether the same result occurs.
FCC Announces Plan to Mandate STIR/SHAKEN Implementation
Telecom carriers are going to get another 15 months in which to implement caller ID authentication under the STIR/SHAKEN protocols under a proposal that was released Friday by the Federal Communications Commission. More details here.
WHAT THIS MEANS, FROM MIKE FROST OF MALONE FROST MARTIN: Later this month, the FCC is expected to vote in favor of proposed rulemaking which would require telephone carriers to comply with its “STIR/SHAKEN” framework by June 30, 2021. Through the use of an electronic signature, “STIR/SHAKEN” allows carriers to verify the accuracy of caller ID information that is transmitted with a call – reducing the frequency of spoofed phone numbers and making it easier for regulators and enforcement agencies to identify perpetrators of illegal robocalls. “STIR/SHAKEN” has been well-received by carriers, many of whom have already begun to roll out implementation.
The full impact on debt collectors and creditors remains to be seen. On one hand, metrics such as frequency calls, low average call duration, and call completion ratios mean that debt collection calls run the risk of being flagged as false positives. On the other, consumers will be more inclined to answer collection calls in the first place if robocall volume is successfully reduced, especially where a standardized framework provides authentication that a call is a legitimate debt collection call.
I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.
